The United States Federal Reserve recently expanded the scope and eligibility criteria for its Main Street Lending Program (the “Program”). The Program, which has been allotted $600B, will provide low-interest emergency loans to small and medium-sized businesses adversely impacted by the COVID-19 pandemic.

View a list of Participating Lenders by State by clicking here.

A. The Program

The Program is intended to fill a gap in financial assistance for businesses that were ineligible, or unable, to obtain funding under The Paycheck Protection Program (“PPP”). However, recipients of PPP funding remain eligible to apply for the Program. Unlike the PPP, the Main Street Lending Program is not forgivable.

All Program loans have:

  • a five-year maturity date;
  • deferral of principal and interest payments for two years (unpaid interest will be capitalized);
  • the ability of the borrower to prepay without incurring any penalty;
  • interest charged at the London Interbank Offered Rate (“Libor”) plus 3%; and
  • applications must be submitted through a bank that is an approved SBA lender.
Read More

B. New Qualifications

The April 30 and June 8, 2020 announced expansions of the Program ease restrictions on who qualifies as an Eligible Borrower:

  • allowing businesses with either 15,000 or fewer employees, or $5 billion or less in annual revenue to participate;
  • lowering the minimum loan amount per company from $500,000 to $250,000;
  • adding a loan option for borrowers designed to help support leveraged companies that may have found it difficult to secure a loan under the prior rules.

C. Eligible Borrowers

To qualify for a Program loan, a borrower must meet the following requirements:

  • be an established business entity prior to March 13, 2020;
  • be in a sound financial condition prior to the onset of the COVID-19 pandemic;
  • not characterized as an Ineligible Business (pursuant to 13 CFR §§ 120.110(b)–(j), (m)–(s), as modified by the SBA for PPP purposes on April 24, 2020 including 85 Fed. Reg. 20811, 85 Fed. Reg. 21747, 85 Fed. Reg. 23450, and subject to change by the Federal Reserve);
  • meet at least one of the following conditions:
    • The business has 15,000 or less employees; or
    • The business has 2019 annual revenues of $5 billion or less;
  • be a United States business (same as the PPP rules);
  • only participate in one of the three Program facilities;
  • not participate in the Primary Market Corporate Credit Facility (“PMCCF”) established by the Federal Reserve to support larger institutions through corporate bond purchases;
    not have received specific support pursuant to Subtitle A of Title IV of the CARES Act (§ 4003(b)(1)–(3), which deals with special carveouts for passenger/cargo air carries, related support fields, and maintenance of national security, but does not include PPP loans or Economic Injury Disaster Loan (“EIDL”) payments); and
  • covenant:
    • to refrain from making debt payments, except when mandatory and due, until the Main Street Loan is repaid;
    • to make commercially reasonable efforts to maintain payroll and retain employees during the loan’s duration;
    • not to cancel or reduce any of its committed lines of credit with any lender;
    • that there is a reasonable basis to believe that the company is able to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy;
    • to follow compensation, stock repurchase, and capital distribution restrictions pertaining to direct loans under Section 4003(c)(3)(A)(ii) of the CARES Act (S corp. and pass-through entities exempted if reasonable to cover tax obligations of the entity); and
    • as to loan eligibility, including that there is no conflict of interest prohibitions under Section 4019(b) of the CARES Act.

D. Eligible Lenders

An Eligible Lender is a U.S. federally insured deposit institution (banks, savings associations, and credit unions), a U.S. branch or agency of a foreign bank, a U.S. bank holding company, a U.S. savings and loan holding company, a U.S. intermediary holding company of a foreign banking organization, or a U.S. subsidiary of any of the forgoing.

E. Three Loans

The Program establishes three distinct types of loans:

  • Main Street New Loan Facility;
  • Main Street Priority Loan Facility; and
  • Main Street Expanded Loan Facility.

1. Main Street New Loan Facility (”New Loan”

The New Loan provides new loans to Eligible Borrowers ranging from $250,000 to $35 million. The maximum loan amount of a New Loan is the lesser of (i) $35 million or (ii) an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed four times the Eligible Borrower’s adjusted 2019 EBITDA. A New Loan is prohibited from being contractually subordinated in terms of priority to other unsecured loans or debt instruments. Once the loan has been issued by the Eligible Lender, the Federal Reserve will then purchase 95% participation in the loan at par value while the lender retains the remaining 5% until the sooner of the debt’s maturity or the Fed’s sale of its entire participation. The New Loan has principal amortization of 1/3 at the end of the third year, 1/3 at the end of the fourth year, and 1/3 at the end of the fifth year.

2. Main Street Priority Loan Facility (“Priority Loan”

The Priority Loan provides new loans to Eligible Borrowers ranging from $250,000 to $50 million. The maximum amount for the Priority Loan is capped at the lesser of (i) $50 million or (ii) an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed six times the borrower’s adjusted 2019 EBITDA. Under this facility, Eligible Borrowers can refinance existing debt owed to a lender that is not the Eligible Lender. At the time of origination, and thereafter during the loan’s duration, the Priority Loan must be senior to or pari passu with the borrower’s other loans or debt instruments in terms of priority and security. Once the loan has been issued by the Eligible Lender, the Federal Reserve will then purchase 95% participation in the loan at par value while the lender retains the remaining 5% until the sooner of the debt’s maturity or the Fed’s sale of its entire participation. The Priority Loan has principal amortization of 15% at the end of the third year, 15% at the end of the fourth year, and a balloon payment of 70% at maturity at the end of the fifth year.

3. Main Street Expanded Loan Facility (”Expanded Loan”)

The Expanded Loan provides for the ability of a borrower to increase an existing term loan or revolving line of credit from an Eligible Lender. The underlying loan must have originated on or before April 24, 2020 with a remaining maturity of at least 18 months (adjustments can be made at the time of upsizing). The increase, or upsize tranche, of the underlying loan ranges from $10 million to $300 million. The maximum loan amount for the Expanded Loan is the lesser of (i) $300 million or (ii) an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed six times the borrower’s adjusted 2019 EBITDA. At the time of origination, and for the duration of the loan thereafter, the upsized tranche must be senior or pari passu with the borrower’s other loans or debt instruments in terms of priority and security. The Expanded Loan Eligible Lenders can sell 95% participation in the tranche portion of the loan to the Federal Reserve at par value. The Expanded Loan has principal amortization of 15% at the end of the third year, 15% at the end of the fourth year, and a balloon payment of 70% at maturity at the end of the fifth year.

New Loans

Priority Loans

Expanded Loans

Term / Maturity
5 years 5 years 5 years
Minimum Loan Size
$250,000 $250,000 $10,000,000
Maximum Loan Size
Lesser of $35M or 4x 2019 adjusted EBITDA (minus outstanding and undrawn available debt). Lesser of $50M or 6x 2019 adjusted EBITDA (minus outstanding and undrawn available debt). Lesser of $300M, 35% of outstanding and undrawn available debt, or 6x 2019 adjusted EBITDA (minus outstanding and undrawn available debt).
Risk Retention
5% 5% 5%
Amortization payments (year one deferred for all)
Years 3-5:

15%, 15% and 70%.

Years 3-5:

15%, 15% and 70%.

Years 3-5:

15%, 15% and 70%.

Interest Rate
LIBOR (1 or 3 months) plus 3.0% LIBOR (1 or 3 months) plus 3.0% LIBOR (1 or 3 months) plus 3.0%
Transaction Fee (can be passed to borrower)
1.0% of Eligible Loan, paid by Lender to Fed SPV. 1.0% of Eligible Loan, paid by Lender to Fed SPV. 0.75% of upsized tranche, paid by Lender to Fed SPV.
Fees for Loan Origination and Servicing
Up to 1.0% of Eligible Loan, paid by Borrower to Lender.

SPV will annually pay Lender 0.25% of the participation amount, for loan servicing.

Up to 1.0% of Eligible Loan, paid by Borrower to Lender.

SPV will annually pay Lender 0.25% of the participation amount, for loan servicing.

Up to 0.75% of upsized tranche, paid by Borrower to Lender.

SPV will annually pay Lender 0.25% of the participation amount, for loan servicing.

Prepayment permitted
Prepayment permitted without penalty. Prepayment permitted without penalty. Prepayment permitted without penalty.
Collateral
Optional for Lender. Optional for Lender. Any collateral for Eligible Loan must secure the upsized tranche on pro rata basis.
Ranking and Priority
Eligible Loan is not, at any time, contractually subordinated in terms of priority to any of Eligible Borrower’s other loans or debt instruments. Eligible Loan is senior to or pari passu with, in terms of priority and security, the Eligible Borrower’s other loans or debt instruments, other than mortgage debt. The upsized tranche is senior to or pari passu with, in terms of priority and security, the Eligible Borrower’s other loans or debt instruments, other than mortgage debt.

Back to Top